Articles for Volume Year 2016 Volume 28-1

Macroeconomic Impact of International Reserves: Empirical Evidence from South Asia[Prakash Kumar Shrestha, Ph.D.]

In recent years, many emerging countries have been accumulating substantial amount of
international reserves by outpacing traditional benchmark in response to a series of financial
crises in the world. In this context, this paper constructs a dynamic macro model with new
monetary policy rule to examine the implications of international reserve accumulation for
macroeconomic outcomes such as economic growth and inflation. Such a macro model is
empirically examined in the data of South Asian countries, namely Bangladesh, India, Nepal,
Pakistan and Sri Lanka by using Panel VAR method for the period of 1990-2014. The empirical
results show that increase in international reserves tends to cause higher economic growth in
these countries but without significant impact on inflation. This implies that these countries can
move further utilizing the accumulated international reserves productively which will enhance
economic growth and maintain internal and external balances.

Poverty Dynamics in Nepal between 2004 and 2011: An Analysis of Hybrid Dataset[Shiva Raj Adhikari, Ph.D.]

Poverty trends describe changes in poverty incidence over time; however, this can mask poverty dynamics. Poverty dynamics discusses the length of time experiencing poverty and explains about movements into and out of poverty. Evidence on poverty dynamics is important for policy makers to design appropriate anti-poverty policies. Panel data is central to obtaining a better understanding of poverty dynamics. Due to the absence of panel data, the paper constructs hybrid dataset using two rounds of cross sectional surveys in 2003/04 and 2010/11 in Nepal to assess the poverty dynamics. Incidence of poverty estimated from hybrid dataset may not be directly comparable with the estimation of poverty through conventional approach. The results indicate that chronic poverty is almost 21 percent for 2003/04 and 2010/11. Movements into and out of poverty, non- poor to poor and poor to non-poor, are 6 percent and 14 percent respectively. Almost 60 percent people are in non-poor category in both periods. Chronic poverty exists in all regions, marginalized ethnic and Dalit (occupational caste) groups. Different anti-poverty policies are required to address chronic or transitory poverty. The policies or opportunities such as increasing credit facilities, increasing access to services, remittances, or social safety net programmes that can stabilize short-term income fluctuations may be more appropriate to address transitory poverty. In contrast, the policies that are related to structural or long-term interventions such as development of basic infrastructure, increasing of social and political inclusion, redistribution of assets, increasing rates of capital accumulation among others are required to address chronic poverty.

Effect of Credit Risk on the Performance of Nepalese Commercial Banks[Yuga Raj Bhattarai]

This study has examined the effect of credit risk on performance of Nepalese commercial banks. The descriptive and causal comparative research designs have been adopted for the study. The pooled data of 14 commercial banks for the period 2010 to 2015 have been analyzed using regression model. The regression results revealed that 'non-performing loan ratio' has negative effect on bank performance whereas 'cost per loan assets' has positive effect on bank performance. In addition to credit risk indicators, bank size has positive effect on bank performance. Capital adequacy ratio and cash reserve are not considered as the influencing variables on bank performance. This study concludes that there is significant relationship between bank performance and credit risk indicators.

In the rapidly growing stock market of Nepal, this study tests the applicability of the portfolio creation model and attempts to aware investors about the potential portfolio alternatives they can make to achieve their peculiar risk-return need, through a robust optimization model. A portfolio model using Markowitz mean-variance method is applied to calculate the optimal portfolio and portfolios fitting the investor specific needs, from a sample of 20 Group “A” listed companies on NEPSE. The monthly stock prices between April 2010 and December 2014 of sample companies are used as training data. And, the applicability of the model is tested based on their prices on April 2015. From the analysis it is concluded that such mean-variance optimization is applicable in Nepal. Furthermore, most of the stocks, even from different sectors, are highly correlated to each other illustrating the lack of diversification opportunity at NEPSE. Additionally, the significantly high volatility even at global minimum variance level illustrated the risky nature of business environment in the country. There is an opportunity for high return, but the investor’s willingness to gain this is tested through the high magnitude of minimum risk. These findings call for the policy makers’ immediate attention in creating a favorable environment to bring the real sector companies in the public trading realm and enhancing the commodities and derivatives market in the country, thereby helping stimulate the investment environment in Nepal.